PAUL MCBETH: Steel yourself for some change

Paul McBeth is the editor of The Bottom Line and Curious News, and previously worked at BusinessDesk for 15 years.

While US President Donald Trump was again shaking up the new world order with his escapades in Venezuela, it was easy to miss the first major corporate activity in our part of the world.

Like a bolt out of the blue for those not in the inner circle, Australia’s BlueScope Steel came out on Monday night confirming reports in the ever-vigilant Australian Financial Review that it was fielding overtures from the Stokes-family controlled SGH and Nasdaq-listed Steel Dynamics to the tune of A$13.2 billion.

The plan being that a successful bid would see BlueScope carved up with the American company taking the US business and SGH keeping the rest, including our own New Zealand Steel.

BlueScope had already been batting away earlier interest in the North American assets from Steel Dynamics and gave the latest A$30 per share short shrift, pointing to the billions it’s been investing in recent years through a torrid time for steel makers.

When I get money you know I like to keep it

The gist being that BlueScope’s board understandably doesn’t want to leave all the upside on the table when someone turns up chancing their arm, even if their offer was 24% higher than the price given by the all-seeing market.

Of course, going public with the offer is all part of the dance for the would-be suitor, with some well-placed whispering to ensure the target’s board can’t simply ghost them, although AustralianSuper and its 13% stake in the steelmaker will want something sweeter to get over the line.

Such is the way when it comes to mergers and acquisitions and BlueScope’s New Zealand business might just be getting a little bit more interesting as a result.

As a brief refresher for those still grappling with summer holiday-brain, the Aussie company owns New Zealand Steel, our country’s only steelmaker and a global pioneer in processing ironsands back in the middle of the 20^th Century.

Don’t you know we always comin’ through

The Glenbrook mill, which lights up the night-sky near Waiuku on the border between Auckland and Waikato, started commercial operations in 1968, with its later expansion from a raw steel producer to a vertically integrated manufacturer of finished steel products part of Robert Muldoon’s Think Big projects.

The expected uplift failed to eventuate and the fourth Labour government pumped more money into the steelmaker, before selling its 89% stake in a hugely controversial fashion to Equiticorp for $327 million just before the 1987 share market crash, in that Crown agents should have been aware that a buyback of those shares was sailing close to breaching companies law with the investment firm the financier of last resort.

The government exercised its right at the much higher fixed price after the Black Monday wipeout and a restructuring by Equiticorp brought on its associate Fisher & Paykel Industries as a junior shareholder of NZ Steel.

The investment firm ultimately went bust and its high-flying chief executive Allan Hawkins was later convicted of fraud by hiding how the firm would fund the purchase rather than Hawkins’ private companies.

I can’t hold the heat no more

Meanwhile, NZ Steel wound up being sold to a consortium led by Australia’s BHP which went on to buy out its partners F&P, Steel & Tube Holdings and ANZ a few years later.

Fast-forward to 2002 when BHP spun out its steel business into what’s now BlueScope, and the local operations have faced challenges typical of the sector over the past 20 years as heavy industry contends with more expensive power, rising wages and increasingly large volumes of cheap Chinese imports.

NZ Steel bought rival Pacific Steel from Fletcher Building just over a decade ago for $120 million, redirecting work to the Glenbrook mill, and has gone through several purges after running the rule over its businesses through some hairy times in the wider global market.

Then in 2023, BlueScope’s NZ unit became a pin-up boy for the commercial green movement with its heavily subsidised $300 million electric arc furnace to halve its coal in producing more than 600,000 tonnes of steel products a year.

The big money figures

At the time, BlueScope’s soon-to-depart-chief Mark Vassella was frank in saying it wouldn’t have happened without the government chipping in $140 million, but in November it was showing off the almost-completed kit to analysts in a site visit on this side of the Tasman where it anticipates boosting New Zealand’s annual earnings before interest and tax by A$80 million through cheaper energy costs and more flexible production.

And that’s before any premium pricing for green steel products coming out of Glenbrook.

Sure, you can take a jaded view of New Zealand Steel’s latest year, when it posted a loss before interest and tax of A$14 million, but given its average earnings over the past decade has been A$72.3 million, that’s some uplift and a chunky contribution to the wider group’s A$500 million increase the board’s tipping by 2030.

That also doesn’t take into account the value of 400 hectares of land surrounding the Glenbrook mill, some of which has already been leased to Contact Energy for grid-scale battery storage.

Fire it up

Which brings us back to BlueScope’s dance across the Tasman.

As is often the case, the group’s New Zealand assets are something of a footnote to the wider group, with Steel Dynamics keen on the 48% of earnings coming from the Northern American division and SGL’s Ryan Stokes seeking a cheap Australian-focused heavy industrial player that can be turned around in much the same way that he swooped on Aussie building materials firm Boral a couple of years ago.

Where New Zealand sits in the Australian scheme of things can often seem like lottery, but given the bidders will have to lift their price if they want to walk away with the prize it doesn’t take too many mental contortions for some local raiders to ponder whether it’s worth shooting a note to Stokes to see whether he wants to offset his acquisition by shedding the relatively little Kiwi business.

Because while a shake-up to the status quo can sometimes seem a little bit scary, it’s also one of the best times to press hard for new opportunities.

Image from Karan Bhatia on Unsplash.